Construction companies are in a quandary over National Highway and State road projects, finding it hard to close jobs undertaken in the build-operate-transfer mode due to delays. They are now looking at new norms that place emphasis on the equipment, procurement and construction (EPC) approach.
While BOT projects expect the successful concessionaire to raise funds, execute projects and manage them over the concession phase of 20-30 years, an EPC order is merely a contractual obligation to execute the project.
Interactions with some infrastructure companies show that the recent instance of GMR Infrastructure terminating the contract with NHAI for a major road project may seem like an isolated case. These, though, are not just isolated instances, say sector players, adding that several companies are on the edge.
Similar is the situation with GVK’s Expressway in Madhya Pradesh. The company is thinking of reconsidering the project because of various hurdles.
Skewed obligations
The Chairman and Managing Director of IVRCL, E. Sudhir Reddy, told Business Line : “Even if a BOT project developer manages to complete 98 per cent of the work as per the contractual obligation and two per cent is struck due to hurdles, it is still considered a delay and the concessionaire will not be able to commission the project.”
The contractual terms are always loaded in favour of the NHAI and, invariably, the developer is seen as a defaulter. While the NHAI has the power to make it tough for the developer, the banks pressure the contractor for delays beyond the latter’s purview, and yet he is penalised. In a contract, both parties need to have equal rights, said another company executive.
This is one of the reasons why IVRCL decided to stay away from BOT projects to concentrate on EPC. The cancellation of two prestigious projects in the Maharashtra-Goa section are instances where difficulties in securing clearances resulted in cancellation of contracts.
The Executive Director of Ramky Infra, M. Gautham Reddy, said issues relating to land acquisition, environmental clearances, right of way and other bottlenecks have been the main concerns for road developers.
The last two years have been tough as interest rates are ruling high and lenders are putting pressure on the developers, many of whom are finding it difficult to close funding, he said.
Rework BOT model
The Executive Director of a leading infra company, requesting anonymity, said the Government needs to take a re-look at the BOT model and the public- private partnership projects. It needs to come out with a workable revenue model that is sustainable to ensure flow of investments.
Outlining the current conditions, India Ratings & Research, a Fitch Group company, accorded a negative outlook on the construction sector based on credit-related metrics. It had given a stable outlook for 2012.
India Ratings continues to be concerned about slow project execution in spite of robust order books. Closing debt funding for BOT projects too has become tough.
The National Highway Builders Federation, the apex body representing construction industry players in road development, has also made it clear that the NHAI needs to secure clearances before inviting bids. This is important in the backdrop of the recent GMR Infra move to terminate the contract with NHAI citing delays in securing clearances. This project was, in fact, at a very advanced stage, contracts had been awarded and financial closure achieved.